Objectives of Comesa
1650 WordsOct 14th, 20097 Pages
Objectives of COMESA COMESA was established in 1994 to replace the Preferential Trade Area for Eastern and Southern Africa (PTA), which had been in existence since 1981. The PTA was established within the framework of the OAU's Lagos Plan of Action (LPA) and the Final Act of Lagos (FAL). Both the LPA and the FAL envisaged an evolutionary process in the economic integration of the continent in which regional economic communities would constitute building blocks upon which the creation of an African Economy Community (AEC) would ultimately be erected. The PTA, and hence COMESA, was established to take advantage of a larger market size, to share the region's common heritage and destiny to allow greater social and economic co-operation, with…show more content…
Creating an enabling environment and legal framework which will encourage the growth of the private sector, the establishment of a secure investment. These objectives have not been met as yet. Role of WTO The WTO was born out of the General Agreement on Tariffs and Trade (GATT), which was established in 1947. A series of trade negotiations, GATT rounds began at the end of World War II and were aimed at reducing tariffs for the facilitation of global trade on goods. The rationale for GATT was based on the Most Favored Nation (MFN) clause, which, when assigned to one country by another, gives the selected country privileged trading rights. As such, GATT aimed to help all countries obtain MFN-like status so that no single country would be at a trading advantage over others. The WTO replaced GATT as the world's global trading body in 1995, and the current set of governing rules stems from the Uruguay Round of GATT negotiations, which took place throughout 1986-1994. GATT trading regulations established between 1947 and 1994 (and in particular those negotiated during the Uruguay Round) remain the primary rule book for multilateral trade in goods. Specific sectors such as agriculture have been addressed, as well as issues dealing with anti-dumping. The Uruguay Round also laid the foundations for regulating trade in services. The General Agreement on Trade in Services (GATS) is the guideline directing multilateral
Common Market of Eastern and Southern Africa, COMESA
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Establishment and member countries
Priorities and Objectives
The free trade area and common tariff structure
A Free Trade Area
Common External Tariff
Establishment and member countries
The Treaty establishing COMESA was signed on 5th November 1993 in Kampala, Uganda and was ratified a year later in Lilongwe, Malawi on 8th December 1994. Member countries are Angola, Burundi comoros, D.R. Congo, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seycelles, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
COMESA replaced the former Preferential Trade Area (PTA) which had existed from the earlier days of 1981. COMESA was established 'as an organisation of free independent sovereign states which have agreed to co-operate in developing their natural and human resources for the good of all their people.'
Its main focus is on the formation of a large economic and trading unit that is capable of overcoming some of the barriers that are faced by individual states. By the year 2000, all internal trade tariffs and barriers will be removed. Within 4 years after that COMESA will have introduced a common external tariff structure to deal with all third party trade and will have considerably simplified all procedures. It has a wide-ranging series of other objectives which necessarily include in its priorities the promotion of peace and security in the region.
History of COMESA
At the first and second conferences of independent African States, held in Accra, Ghana, in April 1958 and in Addis Ababa, Ethiopia in June 1960, respectively, economic problems to be faced by independent Africa were discussed. There was a consensus that the smallness and fragmentation of post-colonial African national markets would constitute a major obstacle to the diversification of economic activity, away from a concentration on production of a narrow range of primary exports, to the creation of modern and internationally competitive enterprises, which would satisfy domestic needs and meet export requirements. It was, therefore, agreed that African countries which had gained political independence, should promote economic co-operation among themselves.
Two options were advocated for the implementation of the integration strategy in Africa: a) the Pan-African, all-embracing regional approach, which envisaged the immediate creation of a regional continental economic arrangement; and b) the geographically narrower approach that would have its roots at the sub-regional levels and build on sub-regional co-operation arrangements to achieve geographically wider forms of co-operation arrangements.
The majority of the countries favoured the narrower sub-regional approach. Based on this, the United Nations Economic Commission for Africa (ECA) proposed the division of the continent into four sub-regions: Eastern and Southern, Central, West and North Africa. The Commissions proposals were adopted by the OAU Conference of Heads of State and Government. All independent African Sates were enjoined to take, during the 1980s, all necessary steps to strengthen existing sub-regional economic co-operative groupings and, as necessary, establish new ones so as to cover the whole continent sub-region by sub-region and promote co-ordination and harmonization among the groupings for the gradual establishment of an African Economic Community by the end of the century.
The origins of the COMESA can be traced as far back as the mid-sixties. Before the Lagos Plan of Action and the Final Act of Lagos were adopted, the countries of Eastern and Southern Africa had already initiated the process towards creating an Eastern and Southern African co-operation arrangement.
In October 1965, the ECA convened a ministerial meeting of the then politically independent states of eastern and southern Africa to consider proposals for the establishment of a mechanism for the promotion of sub-regional economic integration. The meeting, which was held in Lusaka, Zambia, recommended the creation of an Economic Community of Eastern and Southern African states. To achieve this objective, the meeting also recommended that an Interim Council of Ministers, assisted by an Interim Economic Committee of officials, should be set up to negotiate the treaty and initiate programmes on economic co-operation, pending the completion of negotiations on the treaty.
At the first meeting of the interim Ministerial Council held in Addis Ababa, in May 1966, the Terms of Association to govern the interim arrangements before the signing of the formal Treaty were adopted and signed by Burundi, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Somalia, Tanzania, and Zambia. In November 1967, a meeting of the Interim Economic Committee of officials recommended an interim programme of action for implementation which would be integrated into the Treaty when approved. Parallel with these developments, two other organizations were established, the Pan-African Freedom Movement in East, Central and Southern Africa (PAFMECSA), and the conference of East and Central African states. Although these were mainly political in their orientation, their membership extended beyond the sub-region and they included in their activities programmes on economic co-operation.
In the 1970s, the need for a sub-regional economic arrangements became more urgent as a result of three major developments. First, the collapse of the federations in Eastern and Central Africa reduced political co-operation amongst States of the region and this needed to be addressed. Second, the destabilization of the economies of the southern African States by apartheid South Africa made it necessary to create, as a matter urgency, a sub-regional organization which would be an economic counterweight to South Africa. Third, despite the failure of earlier efforts to establish a sub-regional economic co-operation arrangement, the countries of Eastern and Southern Africa recognised that there was no alternative to reducing their traditional economic dependence on the industrialized countries of the north and that this could only be done through the adoption of self-sustaining development measures in all sectors.
In March 1978 the First Extra-ordinary meeting of Ministers of Trade, Finance and Planning met in Lusaka. The meeting recommended the creation of a sub-regional economic community, beginning with a sub-regional trade area which would be gradually upgraded over a ten-year period to a common market until the community had been established. To this end, the meeting adopted the Lusaka Declaration of Intent and Commitment to the Establishment of a Preferential Trade Area for Eastern and Southern Africa and created an Inter-governmental Negotiating Team on the Treaty for the establishment of the PTA. The meeting also agreed on an indicative time-table for the work of the Intergovernmental Negotiating Team.
After the preparatory work had been completed a meeting of Heads of State and Government was convened in Lusaka on 21st December 1981 at which the Treaty establishing the PTA was signed. The Treaty came into force on 30th September 1982 after it had been ratified by more than seven signatory states as provided for in Article 50 of the Treaty.
The PTA Treaty envisaged its transformation into a Common Market and, as such, the Treaty establishing COMESA was signed on 5th November 1993 in Kampala, Uganda and was ratified a year later in Lilongwe, Malawi on 8th December 1994.
The process of economic integration in Eastern and Southern Africa has, therefore, not been episodic, but rather systematic, following a logical progression on a step by step basis. Firstly, a Preferential Trade Area was established and operated for over a decade, which was then transformed into a common market. The third phase will involve the eventual establishment of an Economic Community.
Priorities and Objectives according to the Treaty
The Treaty establishing COMESA binds together free independent sovereign States which have agreed to co-operate in exploiting their natural and human re- sources for the common good of all their peoples. In attaining that goal, COMESA recognises that peace, security and stability are basic factors in providing investment, development, trade and regional economic integration. Experience has shown that civil strives, political instabilities and cross-border disputes in the region have seriously Affected the ability of the countries to develop their individual economies as well as their capacity to participate and take full advantage of the regional integration arrangement under COMESA. It has now been fully accepted that without peace, security and stability there cannot be a satisfactory level of investment even by local entrepreneurs.
Therefore, in pursuit of the aims and objectives stated in Article 3 of the COMESA Treaty, and in conformity with the Treaty for the Establishment of the African Economic Community signed at Abuja, Nigeria on 3rd June 1991, the member States of COMESA have agreed to adhere to the following principles:
(a) equality and inter-independence of the member States;
(b) solidarity and collective self-reliance among the member States;
(c) inter-State co-operation, harmonisation of policies and integration of programmes among the member States;
(d) non-aggression between the member States;
(e) recognition, promotion and protection of human and people's rights in accordance with the provisions of the African Charter on Human and People's Rights;
(f) accountability, economic justice and popular participation in development;
(g) the recognition and observance of the rule of law;
(h) the promotion and sustenance of a democratic system of governance in each member State;
(i) the maintenance of regional peace and stability through the promotion and strengthening of good neighbourliness; and
j) the peaceful settlement of disputes among the member States, the active co-operation between neighbouring countries and the promotion of a peaceful environment as a pre-requisite for their economic development.
COMESA is an all-embracing development organisation involving co-operation in all economic and social Sectors. However, due to resources Constraints, the implemen- tation of activities and programmes will be prioritised to areas where the greatest impacts can be made. To that end, the first COMESA Authority of Heads of State and Government, at its meeting held in Lilongwe, Malawi from 8th to 9th December 1994, adopted the following five priorities to be the basis of COMESA's focus for the next five to ten years.'
- significant and sustained increases in productivity in industry, manufacturing, processing and agro-industries to provide competitive goods as the basis for cross-border trade and to create more wealth, more jobs and more incomes for the people of the region;
- increase agricultural production, with special emphasis on the joint development of lake and river basins so as to reduce dependence on rain-fed agriculture and new programmes on food security at the provincial or district levels, national and regional levels;
- development of transport and communications infrastructures and services with special emphasis on linking the rural areas with the rest of the economy in each country as well as linking the member States
- new programmes for trade promotion, trade expansion and trade facilitation especially geared to the private sector, so as to enable the business community to take maximum advantage of the Common Market, and
- development of comprehensive, reliable and up to date information data bases covering all sectors of the economy including industry, energy, environment, agriculture transport, communications, mvestment and ftnance, trade, health and human resources to form the basis for sound investment decisions and macro-econoinic policy formulation and programming.
The aims and objectives of COMESA have been designed so as to remove the structural and institutional weaknesses in the member States by pooling their resources together in order to sustain their development efforts either individually or collectively. These are as follows:
- to attain sustainable growth and development of the member States by promoting a more balanced and harmonious development of its production and marketing structures;
- to promote joint development in all fields of economic activity and the joint adoption of macro -economic policies and programmes; to raise the standard of living of its peoples, and to foster closer relations among its member States;
- to co-operate in the creation of an enabling environment for foreign, cross-border and domestic investment, including the joint promotion of research and adaptation of science and technology for development;
- to co-operate in the promotion of peace, security and stability among the member States in order to enhance economic development in the region;
- to co-operate in strengthening the relations between the Common Market and the rest of the world and the adoption of common positions in international fora; and
- to contribute towards the establishment, progress and the realisation of the objectives of the African Economic Community.
The COMESA agenda is to deepen and broaden the integration process among member States through the adoption of more comprehensive trade liberation measures such as the complete elimination of tariff and non-tariff barriers to trade and elimination of customs duties; through the free movement of capital, labour, goods and the right of establishment; by promoting standardised technical specifications, standardisation and quality control; through the elimination of controls on the movement of goods and individuals; by standardising taxation rates (including value added tax and excise duties), and conditions regarding industrial co-operation, particularly on company laws, intellectual property rights and investment laws; through the promotion of the adoption of a single currency and the establishment of a Monetary Union; and through the adoption of a Common External Tariff (CET).
By agreeing to the above, member States have agreed on the need to create and maintain:
- a full free trade area guaranteeing the free movement of goods and services produced within COMESA and the removal of all tariffs and non-tariff barriers;
- a customs union under which goods and services imported from non-COMESA countries will attract an agreed single tariff all COMESA States;
- free movement of capital and investment supported by the adoption of common investment practices 50 as to create a more favourable investment climate for the entire COMESA region:
- a gradual establishment of a payments union based on the COMESA Cleaning House and the eventual establishment of a common monetary union with a common currency;
- the adoption of a common visa arrangement, including the right of establishment leading eventually to free movement of bona fide persons.
The free trade area and common tariff structure
A Free Trade Area
COMESA is to establish a Free Trade Area (FTA) by the year 2000 and all countries are supposed to have reduced tariffs by 80% as at October 1996. In fact, only 5 countries (Comoros, Eritrea, Sudan, Uganda and Zimbabwe) have reached this level, with Kenya, Malawi and Mauritius on 70% and processing the 80% level. Tanzania is also currently processing the 80% tariff reduction, which is now before parliament. All other countries, except Angola, Ethiopia and Zaire (which have yet to reduced tariffs by the 60% reduction rate), and those countries which still enjoy a derogation from publishing these tariffs (Lesotho, Swaziland and Namibia) have reduced tariffs by either 60% or 70%.
The problems some countries face are that they are applying tariff reduction rates to already low national rates, leading to inequitable revenue losses and making exports to countries with higher national rates less competitive. There is also a problem with application of the tariff reduction programme at different stages by different countries. Although these problems are seen as temporary, if the FTA is achieved by 2000, and can also be addressed through the principle of reciprocity, the COMESA Secretariat needs to continue to assess the revenue implications the application of the tariff reduction programme is having on individual COMESA countries and, where possible, suggest ways in which reduced revenues from reduced tariff rates can be compensated for, if only in the short-term and in this area the Secretariat may require the assistance of short-term technical assistance inputs.
A further problem to be addressed is the inherent inconsistencies in the implementation of the FTA of COMESA, the proposed SADC FTA and the CBI tariff reduction programme, although this may not constitute a problem, de facto, as if all COMESA countries abide by the agreed timetable of implementing a COMESA FTA only two countries in SADC (South Africa and Botswana) will not have implemented a FTA. However, this is an area in which the COMESA Secretariat will need to work closely with the SADC Secretariat to ensure that implementation of the respective free trade protocols are not contradictory and again this is an area in which the COMESA and SADC Secretariats may need to request the support of short-term technical assistance inputs.
One of the principle mechanisms through which COMESA member States will fulfil the provisions of the COMESA Treaty to simplify and harmonise their customs procedures and documents, to standardise the collection of reliable, accurate and up-to-date trade statistics, to facilitate trade in the region is through the implementation of the Automated System for Customs Data and Management (ASYCUDA) and EuroTrace.
The objective of ASYCUDA/EuroTrace is to assist the business community to clear goods faster from customs areas, make available up-to-date and accurate international trade statistics, modernise customs administrations and, through improved efficiencies, increase the revenues of COMESA member States.
ASYCUDA is being implemented in 13 COMESA countries (Burundi, Comoros, DR Congo, Madagascar, Mauritius, Rwanda, Sudan and Zimbabwe), with formal requests for the system having been received from Malawi, Swaziland and Zambia and projects underway in Eritrea, Ethiopia, Namibia, Tanzania and Uganda.
The assistance of the donor community, at the level of installing ASYCUDA/EuroTrace at the national level (involving supply of computer hardware and initial technical assistance) and at the regional level (through the provision of regional support to the national systems from the COMESA Secretariat) is welcome.
Related to the establishment of a Free Trade Area is the elimination of Non-Tariff Barriers (NTBs) and the simplification of COMESA Rules of Origin and Value Added Criteria.
Steady progress has been made in elimination of non-tariff barriers (NTBs) such as in liberalisation of import licensing, removal of foreign exchange restrictions and taxes on foreign exchange, removal of import and export quotas, removal of road blocks, easing of Customs formalities, extending times border posts are open, etc. There are, however, still a number of improvements which should be made, which should make intra-regional trade easier, such as improving the transport and communications structures, ease visa requirements, improve information, and access to information on trade opportunities, further reduce customs and bureaucratic procedures at border crossings etc. Many of these (such as improving the transport and communications infrastructure) will require significant investment and will only be achieved over a medium to long term time scale and is an area in which donor support and foreign private sector investment will be needed for some time to come.
One specific NTB is the amount of documentation required to move goods between COMESA countries. To assist with the removal of this NTB, by reducing the multiplicity of customs documents, COMESA has designed the COMESA Customs Document, or COMESA-CD, which was scheduled for introduction by all COMESA member States by 1st July 1997.
The Secretariat is currently working on the identification of other remaining non-tariff barriers and drawing up measures on ways in which these NTBs can be resolved and the assistance of the private sector and the donor community in identifying NTBs, recommending ways in which they can be reduced or removed and collaboration with COMESA on the process of their removal would be of benefit to the process of economic growth in the region.
COMESA has been working on levels of value-added content and COMESA Rules of Origin for some time now. Crown Agents carried out a study on these issues in 1994 and recommended introducing a 40% value added on ex-factory price basis and deleting the provision for 25% value added for goods of particular importance to economic development. Although these recommendations were accepted by COMESA, the Secretariat is in the process of undertaking a new study on value added and rules of origin because there are some member States which are not comfortable with the current rules of origin which give undue emphasis on value added content.
The view of the Secretariat is that rules of origin should not be based on an added value criterion alone. In fact firms will try to reduce added value, through reducing costs and becoming more efficient and so rules of origin based on just added value may be counter-productive in promoting intra-regional trade. Added value rules are also arbitrary in nature, complex to apply and introduce a high risk of fraud. Given these drawbacks the rules of origin study proposed by the COMESA Secretariat is not be limited to added value criteria only and will address other issues of regional trade.
The COMESA Secretariat would welcome donor assistance in the implementation of the study on value added content, rules of origin and related topics.
Common External Tariff
COMESA has reached an agreement to implement a Common External Tariff by the year 2004 and as this currently stands the CET will be 0%, 5%, 15% and 30% on capital goods, raw materials, intermediate goods and final goods respectively.
There are still a number of obstacles to be faced regarding the CET, not least on the levels, on compliance, on identifying alternative sources of revenue where revenue loss could result from adopting the CET, on defining the modalities of administering the CET and the categorisation of goods into the proposed CET structure.
The COMESA Secretariat would welcome the support of donors, and the involvement of the private sector, in preparing studies which come up with solutions to these obstacles in the implementation of a COMESA CET.
There are four organs of COMESA which have the power to take decisions on behalf of COMESA, these being: the Authority of Heads of State and Government; the Council of Ministers; the Court of Justice; and the Committee of Governors of Central Banks. The Intergovernmental Committee, the Technical Committees, the Secretariat and the Consultative Committee make recommendations to the Council of Ministers, which in turn make recommendations to the Authority.
- The Authority, made up of Heads of State and Government is the supreme Policy Organ of the Common Market and is responsible for the general policy, direction and control of the performance of the executive functions of the Common Market and the achievement of its aims and objectives. The decisions and directives of the Authority are by consensus and are binding on all subordinate institutions, other than the Court of Justice, on matters within its jurisdiction, as well as on the member States.
- The Council of Ministers (Council) is the second highest Policy Organ of COMESA. It is composed of Ministers designated by the member States. The Council is responsible for ensuring the proper functioning of COMESA in accordance with the provisions of the Treaty. The Council takes policy decisions on the programmes and activities of the COMESA, including the monitoring and reviewing of its financial and administrative management. As provided for in the Treaty, Council decisions are made by consensus, failing which, by a two-thirds majority of the members of the Council.
- The COMESA Court of Justice is the judicial organ of COMESA, having jurisdiction to adjudicate upon all matters which may be referred to it pursuant to the COMESA Treaty. Specifically, it ensures the proper interpretation and application of the provisions of the Treaty; and it adjudicates any disputes that may arise among the member States regarding the interpretation and application of the provisions of the Treaty. The decisions of the Court are binding and final. Decisions of the Court on the interpretation of the provisions of the COMESA Treaty have precedence over decisions of national courts. The Court, when acting within it jurisdiction, is independent of the Authority and the Council. It is headed by a President and consists of six additional judges appointed by the Authority. Consideration is being given to establishing the Court of Justice in the not too distant future.
- The Committee of Governors of Central Banks is empowered under the Treaty to determine the maximum debt and credit limits to the COMESA Clearing House, the daily interest rate for outstanding debt balances and the Staff Rules for Clearing House staff. It also monitors, and ensures the proper implementation of the Monetary and Financial Co-operation programmes..
- The Inter-governmental Committee is a multi-disciplinary body composed of permanent secretaries from the member States in the fields of trade and customs, agriculture, industry, transport and communications, administrative and budgetary matters and legal affairs. Decisions of the Committee are by a simple majority. Its main functions include:
- the development of programmes and action plans in all the sectors of co-operation, except in the finance and monetary sector;
- the monitoring and keeping under constant review and ensuring proper functioning and development of the Common Market; and
- overseeing the implementation of the provisions of the Treaty and, for that purpose, requesting a technical committee to investigate any particular matter.
- There are 12 Technical Committees, namely, on Administrative and Budgetary Matters; on Agriculture; on Comprehensive Information Systems; on Energy; on Finance and Monetary Affairs; on Industry; on Labour, Human Resources and Social Affairs; on Legal Affairs; on Natural Resources and Environment; on Tourism and Wildlife; on Trade and Customs; and on Transport and Communications. The Technical Committees are responsible for the preparation of comprehensive implementation programs and monitoring their implementation and then making recommendations to the Council.
- The Consultative Committee of the Business Community and other Interest Groups is responsible for providing a link and facilitating dialogue between the business community and other interest groups and other organs of COMESA
- The Secretariat is headed by a Secretary General who is appointed by the Authority for a term of five years and is eligible for re-appointment for a further term of five years. The basic function of the Secretariat is to provide technical support and advisory services to the member States in the implementation of the Treaty. To this end, it undertakes research and studies as a basis for implementing the decisions adopted by the Policy Organs. The various activities of the Secretariat encompass: Agriculture; Transport and Communications: Industry and Energy; Trade and Customs; Monetary Co-operation; and Administration. The Office of the Secretary General includes the Legal Office, Technical Co-operation, Women in Development and an Audit Unit.
An important COMESA innovation is that the Common Market Treaty establishes a Court of Justice to oversee the legal relations within COMESA. Persons resident in the Common Market may contest the legality of acts of Common Market institutions as well as that of member States. In effect, the Treaty establishes a "legal community", being whereby entrepreneurs will be guaranteed that business decisions and transactions are not unduly frustrated by unnecessaty bureaucratic interventions.
The COMESA Court of Justice will inter alia: (a) have jurisdiction to adjudicate upon all matters which may be referred to it pursuant to the COMESA Treaty; and (b) have jurisdiction to hear disputes between COMESA and its employees that arise out of the application and interpretation of the Staff Rules and Regulations of the Secretariat or the terms and conditions of employment of the employees of COMESA, and to determine claims by any person against COMESA or its institutions for acts of their servants or employees in the performance of their duties.
Several institutions have been created to promote sub-regional co-operation and development. These include:
- The COMESA Trade and Development Bank in Nairobi, Kenya;
- The COMESA Clearing House in Harare, Zimbabwe
- The COMESA Association of Commercial Banks in Harare, Zimbabwe
- The COMESA Leather Institute in Ethiopia
- The COMESA Re-Insurance Company (ZEP-RE) in Nairobi, Kenya
Further initiatives exist to promote cross border investment, form a common industrial policy and introduce a monetary harmonisation programme.
- COMESA, as well as is predecessor the PTA, has achieved a lot in the area of trade, customs, transport, development finance and technical co-operation. Impressive progress has also been made in the productive sectors of industry and agriculture.
- Trade facilitation and trade liberalization measures are bearing fruit. Intra-COMESA trade has grown from US$834 million in 1985 to US$ 1.7 billion in 1994, an annual growth rate of 14%, and studies indicate that this can increase to about US$4 billion annually. The challenge facing COMESA is to exploit this potential further.
- As a result of COMESA traffic facilitation measures, transport costs have been reduced by a factor of about 25% and efforts are underway to reduce them further.
- In the sector of telecommunications, special emphasis has been placed on network development to enable direct telecommunication links through more reliable infrastructure in order to avoid third country transit systems, which prove to be very costly.
- COMESA has established several important institutions including the PTA Trade and Development Bank, the COMESA Clearing House, the COMESA Re-insurance Company and the COMESA Leather and Leather Products Institute.
- The PTA Bank has, over the years, been very active in promoting investments and providing trade financing facilities. The Bank's cumulative project approvals, 1995-1996, stand at USS$148 million and cumulative trade finance activities, 1992 - 1996 totalled US$345 million.
- A number of decisions have been taken to make the COMESA Clearing House more responsive to the current needs of member States, especially the private sector, including the introduction of the COMESA Dollar to replace the UAPTA as the new Unit of Account of the Clearing House.
- The Re-Insurance Company (ZEP-RE) has, since its etablishment in 1992, been able to carve out a reasonable share of the regional insurance business and is now transacting business in some nineteen (19) countries. The share capital has risen to US$6.07 million. By the end of 1995, the premium income realized had increased to US$7.5 million. Two additional member States acceded to the ZEP-RE Agreement in August 1996. This shows the great business potential of the COMESA region in terms of re-insurance.
- COMESA now recognizes that in order to increase levels of intra-regional trade, there is a need to address the regulatory and policy aspects of transport and communications to make the movement of goods, services and people between countries in the region easier and cheaper; to create a legal framework and enabling environment within which private sector business can operate effectively in the region, and to harmonize macro- economic and monetary policies.
- COMESA also recognizes the need to promote investment in the region and addresses this issue through facilitation of bilateral agreements; promoting export drives by individual member States, and identifying specific projects which have the potential to act as grnwth poles between two or more member States.
Africa as a whole will enter the next millennium facing huge economic, social and political challenges. Paramount among these are a hostile external trade environment, a large debt burden and reducing levels of Official Development Aid (ODA).
Up until the late 1980s and early 1990s most COMESA countries followed an economic system which involved the state in all aspects of production, distribution and marketing, thus denying the private sector an economic role to play, except as shopkeepers, and promoted import substitution and subsidised consumption. The theory was that successful emerging industries could be identified by the state and nurtured, through a system of subsidies, grants and protection from foreign competition behind a high tariff wall, and that these industries could then grow to a size from which they could compete against foreign firms. This did not actually happen as the domestic markets were too small, in terms of purchasing power, for industries to realise economies of scale; lack of competition resulted in poor quality goods being produced; foreign direct investment was actively discouraged, resulting in insufficient levels of investment taking place in both capital and labour and in low levels of technology transfer; and a lack of complementarity between domestic industries.
Initially, import substitution programmes were financed from domestic earnings, such as revenues realised from sale of primary agricultural commodities and minerals. As levels of revenue from these sources declined, owing to declining terms of trade and reduced efficiencies in production systems, these countries started borrowing on western capital markets, and from the World Bank and IMF, to maintain previous levels of consumption. As many of the countries concerned where at this stage considered to be middle-income countries, they borrowed at commercial rates. The borrowed money was usually not used to improve production so real levels of GDP continued to decline while expenditure levels, which had by then risen significantly, as a result of higher debt servicing payments, continued to increase.
Governments of COMESA countries faced these economic crises by continuing to borrow on international markets; placing heavy restrictions on foreign currency transactions to try to reduce capital flight; pegging the value of the local currency against freely convertible foreign currencies artificially high to reduce costs of essential imports (such as fuel which in itself caused crises in the early 1970s); using revenues from parastatal industries to finance the public sector recurrent budget, leaving little revenue for re-investment in these strategic industries, resulting in further declines in production; reducing the import bill by restricting by statute items which could be imported; and heavily subsidising all aspects of domestic agricultural production to promote self-sufficiency in food production, which only served to make agriculture sectors even more inefficient than they already were.
This package of economic policies has contributed significantly to the economic decline of the region and to Africas gross domestic investment having fallen consistently for the last 20 years, being currently recorded at 17 per cent of GDP. Assuming that a minimum investment ratio of 20 per cent of GDP is needed to cover depreciation and repair costs, current levels of gross domestic investment leave no room to finance production expansion, productivity improvement or diversification. The net result is decreasing competitiveness on the world market and loss of market share.
Foreign direct investment (FDI) in Africa is negligible, at approximately 1 per cent of GDP. This represents 0.8 per cent of all FDI and 2.1 per cent of FDI going into all developing countries. The low levels of FDI being attracted by Africa confirms, among other things, the regions exclusion from the intra-firm network, which accounts for the largest contribution to growth of world trade, with intra-firm trade being, to a large extent, fuelled by FDI.
The COMESA region (excluding South Africa) is not yet in a position to attract FDI and portfolio funds at a level which would result in a significant economic impact, because of the real and perceived risks associated with investment in the region, and because of the perception that returns on investment in Africa are low. Risk-related aspects of investment are affected by both political and commercial factors which may threaten invested capital and/or dividend returns. Profitability of investment relates primarily to market size and the cost of doing business, the latter largely influenced by productivity and effectiveness of infrastructure.
As regards market size, Africa has many of the worlds smaller states, with 7 countries with a population of less than one million, and 36 with a population of less than 10 million. Only 4 sub-Saharan countries have a population of more than 30 million. Southern Africa, without South Africa, has a total GDP of around US$30 billion (1993), about a quarter of South Africas present GDP of US$120 billion and less than half of Israels GDP of US$69.7 billion (1993). Similarly, the current total GDP of the COMESA region of 23 countries is only around US$90 billion, less than that of South Africa and less than half of Belgiums.
Net external financing to all African countries including South Africa, is not expected to exceed US$20 billion in 1997, which is in stark contrast to the situation in other developing regions, where FDI has become the dominant vehicle for the transfer of resources from the rich to the poorer countries.
The above problems are further compounded by the regions terms of trade which have declined by over 15 per cent since. The share of the regions trade in the world markets has also fallen by half since 1970 and accounts for less than 1.5 per cent of all world trade, placing sub-Saharan Africa at the very margins of the global economy.
In terms of African trade, there has been little structural transformation, with trade being dominated by exports of primary commodities. In 1993, 86 per cent of Africas foreign exchange earnings were derived from primary commodities, including crude petroleum, whereas 73 per cent of the total value of imports was accounted for by manufactured goods.
Africa (including South Africa) contributes no more than 3 per cent to globally traded goods and its share of world trade has been declining steadily since 1980. Between 1980 and 1993, when world trade doubled in value, Africas external trade remained at about the same level in absolute terms. The share of sub-Saharan Africa in world exports declined from 2.5% in 1970 to 1% in 1990, while its share in developing country exports declined from 13.2% to 4.9% in the same period. Since then the share of the continent in global trade has fallen to just over 2%.
The magnitude of COMESAs external indebtedness is also a source of serious concern. The external debt of the COMESA region has increased twenty-fold since 1970 and debt service ratios which, in 1970, were insignificant, averaged 45 per cent of export earnings in 1989-90, making the region one of the most heavily indebted in the world. While member States borrowed heavily to maintain incomes and investments, the collapse of their export earnings undermined attempts to reduce their debts. Debt relief to the COMESA region, and sub-Saharan Africa as a whole, has been limited in relation to the magnitude of the problem and inflows of Official Development Assistance (ODA) continue to decline. The aggregate external debt owed by sub-Saharan Africa, including South Africa, was US$318 billion in 1994, compared to external financing to all African countries of about US$15 billion in 1996.
On the production side, both the agricultural and industrial sectors have been in decline. For many COMESA countries, agriculture constitutes between 50 and 76 per cent of GDP but the growth of agricultural output, at an average of 2 per cent per year over the last three decades, has barely matched that of population growth, so has not contributed effectively to sustainable growth and development. Agricultural exports have declined, budgetary allocations to agriculture have remained small and inadequate and an anti-poor bias in agricultural policy across much of the region, notably through over-taxation of crops, inadequate spending on market infrastructure for small-holder producers, and insufficient investment in research of local foods have combined to adversely affected the regions trade share of exports in the world market, which has dropped by 50 per cent since 1970. Food imports are increasing at about 8 per cent a year and COMESAs current bill for cereals is over US$2 billion. This heavy and chronic dependence on food imports is particularly dangerous for COMESA, not only because its debt and trade problems impose serious limits on its ability to purchase food in world markets, but also because there is no guarantee that food aid and/or commercial imports will be available when needed in the required quantities and quality.
Although industry grew roughly three times as fast as agriculture in the first decade of independence, the past few years have seen an alarming reversal in many States where de-industrialisation, as a short-term effect of structural adjustment, has set in. Progress in the manufacturing sector has fallen far short of the target growth rate of 8 per cent per annum projected in the second Industrial Development Decade for Africa (IDDA II) as a result of entrenched structural rigidities, weak inter-industry and inter-sectoral linkages, lack of access to advanced technologies and poor institutional and physical infrastructure. The African continents share of world manufacturing value added (MVA) rose from 0.7 per cent in 1970 to 1 per cent in 1982 and fell to 0.8 per cent in 1994. Most African industries have a very low capacity utilisation rate and current structural adjustment programmes have as yet to have a positive impact on the industrial sector.
Population is expanding at a rate of around 3.2 per cent, outstripping agricultural and food production and COMESA now has twice the population it had in 1965 and more than five times the population it had at the beginning of the century.
The region has also experienced, over the last few years, unprecedented droughts, leading to widespread food shortages and famine. There is growing and widespread poverty in the COMESA region, especially among the rural communities, aggravated by the decline in expenditures on social services, including health, education and public utilities, nutrition has worsened and mortality continues to increase.
There is a major crisis in employment in all countries, especially among the youth in cities and towns. Unemployment in most countries is as much as 30 per cent or more of the active labour force and under-employment is just as serious. The majority of the regions population still dwell in the villages and earn their living cultivating between one and fifteen hectares.
The COMESA region has also had to contend with civil strife, ethnic wars and political instability which have also contributed to the decline in economic growth.
In summary, the economic performance of the COMESA region has been rather disappointing over the last two to three decades, with overall economic growth of the COMESA region having averaged 3.2 per cent a year since 1960 and only marginally above the level of the regions population growth. By 1993, this region of over 280 million people, which has more than doubled its population since independence, had a total GDP of around US$90 billion, and included fifteen of the twenty-three States classified as Least Developed Countries (LDCs) by the United Nations.
Economic and social forecasts for the region suggest that the outlook for the future is promising provided member States adopt and implement strategies which will further outward-orientated regionalism in the process of becoming fully integrated into the global economy. Most COMESA countries are individually too small to achieve economies of scale in the production and marketing of their products and need to work together as a region if they are to achieve significant levels of economic growth and compete in a world market which is becoming increasingly dominated by large trading blocs.
The 1990s have seen the progressive globalisation of economic activity and an increased economic interdependence between countries. This globalisation has, in many instances, been achieved first through a process of regional economic integration. The developed world, for instance, has created regional groupings such as NAFTA, the European Union and APEC and these groupings are now poised to take full advantage of the opportunities offered by the further globalisation of the economy, under WTO rules and regulations.
If sub-Saharan Africa is to benefit from sustainable economic growth it will need to do this through trade liberalisation and regional integration. Countries and regions unable or unwilling to integrate themselves into the global economy will not benefit from growth-enhancing features of this larger integration and will be further marginalised in the world goods and capital markets. Integration tends to promote higher growth through such channels as improved resource allocation, greater competition, technology transfers and learning and improved access to foreign capital. Trade and investment tend to increase in countries which have opened themselves up to the world economies and growth itself tends to promote integration.
Intra-regional trade will therefore be an essential vehicle for the promotion of diversification and establishment of linkages between production units in different African countries. Not only will it contribute to improved productivity and greater competitiveness for African products, it will also provide a stronger basis for the effective participation of the African region in the global economy.
The consensus on the need for closer regional co-operation and integration in Africa; the view that effective co-operation and integration would assist African countries to overcome the difficulties linked to the economic fragmentation of the continent; and the disappointment in the results achieved by previous attempts to create closer regional ties is also shared by Africas co-operating partners.
It is in this context that COMESA is promoting regional integration and, through this, regional economic growth, by emphasising measures which reduce the costs of moving factors of production, goods and services across national boundaries in the Eastern and Southern African region, with relatively low tariff barriers against third parties.
Almost all COMESA member States are implementing structural adjustment programmes, most with the support of the Bretton Woods institutions. The process of structural adjustment and economic reform at the national level make it more likely that regional integration measures will succeed, in that countries are now no longer operating under the constraints of import-substitution, industrialisation strategies. Countries which have removed exchange control restrictions, reduced tariff barriers to trade, reduced the bureaucratic obstacles to doing business (including obstacles to cross-border investment and movement of factors of production), allowed interest rates to be set by the market and implemented other fiscal, financial and structural reforms are now better placed to achieve economic integration with each other. In addition, with a few notable exceptions, countries of the region do not have the strong political differences, which existed in particular in the 1970's, and so do not restrict economic interaction with their neighbours purely on political and security grounds.
However, although these measures alleviate some of constraints on intra-regional economic activity, there have occasionally been cases where the programmes have been detrimental to regional integration. By placing trade liberalisation and deregulation measures in a regional context, COMESA is able to build upon the progress made under national structural adjustment programmes while at the same time addressing the regional dimensions of adjustment.
By taking full account of the general move away from state controlled economies in favour of more liberalised, market-determined economies and by recognising the vital role the private sector has to play in the social and economic development of the region, COMESA is uniquely positioned to assist with the process of regional integration. The priority role of the COMESA Secretariat, within the framework of the COMESA Treaty, is to take the lead in assisting its member States, through promotion of regional integration, to make the adjustments necessary for them to become part of the global economy within the framework of WTO regulations.
By taking, as its focal areas, issues of trade promotion and economic integration, COMESA is concentrating its activities on trade liberalisation and customs cooperation; administrative aspects of transport and communications to make the movement of goods, services and people between countries in the region administratively easier; promoting the adoption of a common set of industry standards; promoting the establishment of a stable and secure investment climate; creating a legal framework within which businesses can operate within the region; and playing a role in harmonising macro-economic and monetary policies.
COMESA is now poised to achieve a free trade area by the year 2000 and recent studies indicate that this process will result in intra-COMESA trade increasing from its present 8 per cent to nearly 20 per cent.
Expanded intra-COMESA trade would help overcome feast and famine surges and shortages in food supplies. It would also give industries in member States, which have been too long protected in markets that are too small, expanded markets in which to compete and enable them to expand production and exports within COMESA and with third countries.
The role of the private sector in this process of economic growth and regional integration can not be over-stressed and the economic future of the COMESA region is almost totally dependent on the performance of this sector.
The role FDI will play in the economic future of the region is also of major importance. Although COMESA can offer an attractively-sized and harmonized market of over 300 million people and although the region has large mineral and agricultural wealth in which there are exciting investment opportunities, the member States need to continue to offer a stable and attractive political and economic environment for them to attract FDI so that the regions potential can be realised in full.